GoLocalProv | EXCLUSIVE: The Providence pension fund is cratering

Tuesday, July 12, 2022

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PHOTO: GoLocalProv

Providence pension fund documents secured by GoLocalProv show that the struggling pension fund lost almost a quarter of its value from July 1, 2021 to June 16, 2022 during this fiscal year.

Final numbers won’t be known until later this month.

This is devastating news for municipal workers, retirees and taxpayers.

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As of July 1, 2021 – the start of the fiscal year – the Providence pension fund balance was $410,173,908 – and the pension fund, even at that level, was over 70% underfunded.

But over the past 11.5 months, the pension fund balance has shrunk more than 23% and fallen more than $94 million in value, according to City of Providence documents.

Now, according to pension fund documents, the value of the fund has fallen to $315,775,033.

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City of Providence

Difficult year, but not so difficult

Pension funds across the country have been hit hard by the stock market slump, but most haven’t fallen as much.

For example, the largest pension fund in the United States saw a decline, but much less than the Providence system.

“The CalPERS portfolio fell 4% in the first quarter and 10% in early June compared to the end of 2021, consistent with broader market volatility since the start of the year partly due to the increase in inflation, said CIO Nicole Musicco. the investment committee…”, reports Pension & Investment.

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City of Providence

4 years of growth wiped out

The pension fund balance has now fallen to the fund balance in the first quarter of 2018 according to a city chart.

Providence Mayor Jorge Elorza — who has proposed a number of plans to address the city’s unfunded pension liabilities, including multiple efforts to sell the city’s water supply — declined to answer questions. from GoLocal on this most recent drop.

In February 2021, a series of GoLocal reports revealed that the Providence pension fund underperformed in 2020 and that one investment in particular had a negative impact on the performance of the fund’s investments in “alternative investments” – hedge funds.

This hedge fund, Renaissance Institutional Equities Fund, lost more than 19% in 2020 and in January 2021, this fund lost another 9.5%, according to Marketwatch.

When GoLocal first reported Renaissance’s impact, Elorza, who was then chairman of the city’s Board of Investment Commissioners, said in a statement from his office: “The Board of Investment Commissioners actively oversees the management of the Providence pension fund and will continue to reassess investments in any underperforming funds.”

Pension obligations

Elorza is now trying to go ahead and issue $515 million pension bonds (POBs).

This type of borrowing is criticized by many tax experts – recently, a new study from Massachusetts called issuing POBs a potential tax disaster.

“Virtually every study of POBs finds that the timing and duration of bond issuances are critical,” said EJ McMahon, author of “Rolling the Retirement Dice.” “Bonds issued at the end of a bull market are the most likely to lose money, and that makes this idea a bad turn at the worst possible time.”

The City of Springfield, MA has decided to cancel its $755 million POB issue due to financial markets.

On Thursday, the Providence City Council approved a resolution on an 11-to-1 vote allowing the city to fund a contribution to Providence’s unfunded pension liability.

This was the last step in the authorization process. However, state legislation allowing the city to borrow does not allow the city to proceed unless it can borrow with an interest rate of 4.9% or less.

Currently, the borrowing rate is above 6%.

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Dolores W. Simon